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Bob Iger promises steady help when he returns to Disney On Wednesday, it will be Wall Street’s turn to feel a sense of calm again.
As the last major streaming player to report earnings, Disney will likely join its peers in pledging to stick with its plan to make its direct-to-consumer business profitable in 2024. Investors will focus more on whether cost-cutting measures aimed at saving $5.5 billion a year are paying off, although labor conflict and politics may be their turn to talk.
The release of quarterly results comes at a time when Disney Intensify legal fight against Florida Gov. Ron DeSantiswhich faced investor questions about the future of Hulu and ESPN in its streaming strategy, is now facing potential fallout from Hulu and ESPN Writers Guild of America Strikewhich started last week after the group was unable to reach an agreement in contract negotiations with a union of film and television producers.
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That’s a lot on Iger’s plate, but he’s had considerable backing from investors in the Mouse House’s past runs. Ross Gerber, chief executive of Gerber Kawasaki Management, said that despite the challenges facing the company, Disney remains “in the lead.”
“They’ve got a huge asset, they’ve got a great streamer, they’ve had a lot of success, but they’ve been poorly managed. [Bob] Chapek is the least intuitive entertainment CEO I’ve ever met. He just wasn’t supposed to be there,” Gerber told TheWrap. “Iger just wanted to repair the damage that had been done, get quality content back into the system and cut costs. Iger will succeed. “
streaming problem
Referring to Disney’s quarterly results, Gerber said he would focus on the profitability and subscriber growth of the streaming business; the outlook for the parks business, especially related to China; the company’s expectations and strategy for its theatrical business; and ESPN’s plans are clearer.
“I don’t think we’re going to hear anything about Hulu’s plans,” he said. “I think Hulu is actually a good platform, has legs and has live TV. So it does fit, unless someone is willing to pay a premium for it. I don’t think [Disney] Hulu trying to sell it for the right value unless they team up with Comcast [out]”
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in a 2019 agreement, Disney can buy out Comcast’s minority stake in Hulu as early as January 2024, and Comcast can ask Disney to do so. Disney has guaranteed a minimum total equity value of $27.5 billion for Hulu, suggesting Comcast’s stake is worth at least $9 billion. As of October 1, 2022, Disney values Comcast’s stake at $8.7 billion.
Iger has said Disney is looking at Hulu “very, very carefully” and said all options are on the table, including a potential sale. Comcast has also expressed interest in buying Disney’s two-thirds stake in Hulu if it goes up for sale.
As for ESPN, Gerber will be particularly concerned about whether the company will venture into sports betting for updates by partnering with an app or launching its own. He also wanted to hear about Disney’s plans for the cable TV side of the sports network as linear TV ratings continue to decline.
“I think about ESPN, they can clarify a lot of things,” he added. “I think it’s still very difficult for Hulu to predict what’s going to happen.” In a Most recent earnings callComcast President Mike Cavanagh rudely declined to answer questions about Hulu.
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swing an ax
Investors will be curious about the one-time charges associated with Disney’s cost cuts, how those cuts will affect the company’s growth and what the long-term benefits might be, Gerber said.
So far, the company has 4,000 layoffs Of the 7,000 employees announced in February.Affected sectors include ABC and Freeform, five three eight, Disney+ and Disney Studios and ESPN.
“if only [Iger] Can reassure investors that cost-cutting efforts are making progress [Disney] It’s been planned and they’ve been able to execute it well, which provides some cushion,” Bloomberg Intelligence analyst Geetha Ranganathan told TheWrap. “I think that’s earned him the goodwill of Wall Street. “
headline risk
Like other major studios, Disney will face questions about the WGA strike and its potential impact, especially on earnings targets for its streaming division.
“I’m expecting some commentary on the WGA strike, but not too much,” Morningstar analyst Neil Mack told TheWrap. “In terms of impact, I think it depends a lot on how long the strike lasts. The longer it goes on, the more production is delayed. Then after the long strike is over, there will be a lot of projects trying to recover production, raising costs across the board and potentially causing further delays.”
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The WGA previously noted in a memo to analysts and investors ahead of the strike that Disney produced 890 of the 4,450 WGA-covered comedies and dramas in the 2021-2022 season. While fewer new titles and episodes are available on Disney+ and Hulu, the extended strike could lead to more disappointed viewers canceling their streaming subscriptions, A former studio executive previously told TheWrap The studio’s streaming division may not see the impact of this until late 2023 or early 2024.
“I really don’t think this is necessarily a big pain point for investors,” Ranganathan said. “We don’t really look at subscriber numbers anymore as a way to drive the narrative of the stock. So from a stock standpoint, I don’t think it’s a big deal.”
The short-term risk may be more negative publicity than fiscal impact.Iger was one of eight CEOs selected A recent WGA infographic slammed Hollywood executive pay packages.
Disney’s fight with DeSantis also represents more of a “headline risk” than a financial one, Ranganathan said.
“I think Disney clearly has the legal upper hand,” she said. “It’s going to be a long game.”
Analysts currently expect Disney to report earnings of 88 cents a share on revenue of $21.7 billion. After falling 43.9% in 2022, Disney shares were up more than 15% year-to-date as of Monday’s close.
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